Educational Articles

From the Survey: Monsanto Company

George M. Lee
| March 15, 2014

Monsanto (MON) is the world’s foremost agriculture company. It is a leading supplier of genetically modified seeds, which has made it the primary target of anti-GMO movements all over the world. The company also produces herbicides like Roundup, and has recently expanded its reach into some promising business areas.

The current agriculture giant is different from the original Monsanto, which was a producer of plastics, polystyrene, and synthetic fibers. Founded in 1901, the company started out producing Saccharin, an artificial sweetener. Over the years, Monsanto expanded into the chemicals industry, and has been credited with numerous scientific breakthroughs, including being the first mass producer of LEDs.

However, this company was also responsible for manufacturing some controversial products over the years: DDT, PCBs, Agent Orange, and bovine growth hormone. Each of these turned out to have substantial negative ramifications for people or the environment. Making matters worse, the company’s reputation suffered as it attempted to defend and play down the actual severity of these products.

Monsanto has a long history of acquisitions. Around the turn of the 21st century, it merged with Pharmacia. Shortly thereafter, the current Monsanto, which specializes in agriculture, was spun off in 2000. Since then this new entity has leveraged its deep R&D roots, and become an indispensable partner of the global agricultural industry. The company’s technological advances have undoubtedly helped alleviate the world’s food scarcity problems, which have been exacerbated in recent years by global climate change.

Unfortunately, the company’s dark past seems to have permanently sullied its brand. Opponents of Monsanto’s transgenic GMO seeds do not hesitate to portray this technology as merely the latest development in a long string of harmful products from a deceptive company. Although concrete evidence regarding the toxicity or safety of consuming GMOs has yet to be found, this anti-GMO movement has gained substantial support in recent years.

That said, the company knows how to turn a profit, and demand for GMOs is highly unlikely to dissipate overnight. Global food shortages and more challenging growing conditions due to climate change will continue to provide pressure for governments to support these solutions. Already, over 90% of all corn, soybeans, and cotton grown in the United States are considered genetically engineered varieties. Although certain regions like Europe have implemented extremely stringent GMO regulations, Monsanto should encounter receptive markets in emerging economies. Indeed, the company has already garnered much success in Brazil and Argentina.

The company currently operates in two segments: Seeds & Genomics and Agricultural Productivity. Seeds & Genomics business, which accounts for roughly 70% of MON’s annual sales, has proven to be very lucrative. These segments, however, will likely change over time.

Monsanto is not oblivious to the increasing frequency of anti-GMO protests, and has already begun to plan ahead. The company’s subsidiary, Seminis, has produced premium vegetables through the use of traditional crossbreeding techniques. Moreover, Monsanto recently acquired The Climate Corporation, a company that specializes in predictive data analytics and was previously funded by so-called good guys like Google (GOOG). With the ongoing transition towards big data, this acquisition can potentially redefine its agricultural productivity business, which has traditionally been dominated by its toxic pesticides.

If the trend towards organic foods takes hold and becomes the new standard, expanding into the software, insurance, and consulting business will provide Monsanto with alternate ways to leverage its expertise within the agricultural sector. Doing so will also potentially help the company to redefine its brand as a champion of environmental sustainability, and finally shake off the ghosts from its past.

Investors would be foolish to ignore this proven innovator and well-oiled profit machine. Although the company has tried to distance itself from its darker history, it has also inherited a great knack for R&D. Monsanto’s focus on innovation and deep coffers make it a potential game-changer in anything that it chooses to do. With the proper leadership and direction, this company has the potential to move global agriculture into the future, all the while providing outsized returns. Investors who are intrigued by this vision will want to keep close tabs on this company. Subscribers should also check out our routine coverage in The Value Line Investment Survey.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.